Zapatero Announces Caja Cleanup
January 11th, 2011
Spanish Prime Minister José Luis Rodríguez Zapatero today announced he would accelerate the cleanup of the country’s network of savings banks known as ‘Cajas’.
This means the cajas will disclose their exposure to real-estate and construction loans, which could require state-funded recapitalization of some.
The details will include assets used to guarantee them, loan-to-value ratios, repayment histories and provisioning levels. They must also disclose detailed information on their financing needs.
Spain has injected just around €11 billion into its banking sector, equal to around 1% of gross domestic product and much less than in most other developed countries during the crisis.
“I understand there are doubts,” Mr. Zapatero said at a presentation to business leaders and journalists.
“As a result, we have an urgent objective, which is for banks to improve as soon as possible their capital structures,” the Prime Minister said, adding that the state’s Fund for the Orderly Restructuring of the Banking Sector (FROB) is ready to help with the process if needed.
Spanish authorities have sought to limit the cost of the banking-sector cleanup by forcing ailing institutions into mergers with stronger ones.
Following the banking stress tests conducted across Europe in July, the Bank of Spain said four of these new institutions needed to bolster their solvency ratios.
Bank of Spain Governor Miguel Ángel Fernández Ordóñez recently said he doesn’t believe Spanish banks will need more state funds in 2011 and that he hopes banks will be able to raise funds from markets if they need to.
Most private-sector analysts believe this month’s disclosure exercise will show Spanish banks need more capital, but not much more.
One closely watched set of disclosures will be from the new entity formed by two of Spain’s largest savings banks, Caja Madrid and Bancaja, as well as some smaller lenders.
The new bank, Spain’s third-largest by assets and with a market share of more than 10%, is considered a primary gauge for the bank sector’s condition and key to whether efforts to attract investors will work.
UBS AG estimates that Spanish savings banks will need up to €20 billion in state funds to bolster their capital ratios to levels that will allow them to access international capital markets. In this scenario the banks would be allowed to cover losses with earnings generated over time.
However, if Spanish authorities want to clean up the banks immediately and raise their solvency ratios to levels that will really inspire investor confidence, UBS calculates that could cost up to €120 billion.
In theory, even this larger amount should be manageable for Spain, which has one of the euro zone’s lower public-sector debt levels.
“The situation of the banks is not that dramatic,” said Roberto Ruiz, a UBS strategist in Madrid.
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